Bank of Japan FinTech Forum
The Bank of Japan held its 8th FinTech Forum on Friday, June 14, 2019. While the previous event, in November 2018, focused on retail payments, this time the presentations covered corporate payments and data utilization across the supply chain. Executive Director Yuichi Ikeda, responsible for the Payment and Settlement Systems Department, Research and Statistics Department, and Operations Department, provided the welcome remarks.
Advanced corporate payment methods and better utilization of corporate data may be directly linked to improvements in corporate productivity and economic growth through the streamlining of management, restructuring of operations, or creation of new added value.
The use of payments and supply chain data is both an old and a new theme. Looking back at the history of accounting, the spread of double-entry bookkeeping in medieval Europe had brought about significant advances that focused on the recognition of income and spending patterns. Technological innovation that appropriately identifies and measures the source of income and expenditure, and links this with the movement of funds, has made it possible to gain an integrated view of corporate activities and finance.
Even today, it still holds true that the relationship between accounts receivable and accounts payable generated by commerce and the movement of funds initiated by it is one of the basic tenants of corporate accounting. This is also important for companies to quickly grasp their management trends and to formulate appropriate management strategies.
In addition, various information systems have been developed, from financial accounting software to ERP (Enterprise Resource Planning), in response to the increasing complexity and speed of corporate activities. With the widespread use of the Internet in recent years, these information systems are migrating to cloud services. On the other hand, in financial services related to payments, the use of firm banking (ファームバンキング) and the digitization of payment information are progressing.
However, looking at further effective use of payment and supply chain data, it seems that high barriers still remain. That is because information systems, which were originally optimized and developed individually, have limitations in efficiency and utilization.
Open systems
With the spread of information technology, the importance of the two keywords “open” and “interoperability” is increasing. These two concepts are also likely to be the key to breaking through the barriers I have just mentioned in the use of commercial data and payment data.
In order to make effective use of payments and supply chain data, it is essential to quickly acquire the necessary data from business partners and financial institutions. The first key word, open, plays an important role in the rapid and efficient transmission of information. In the past, payment data pertaining to deposits and withdrawals has been acquired through postings to passbooks.
However, in recent years, the use of Internet banking and the provision of open APIs by financial institutions have begun to progress, and various services utilizing this have been appearing. As a result, companies are able to quickly and efficiently obtain the necessary payment data. In the accounting service for small and medium-sized enterprises, the online environment has been used to create and send invoices, and the function to automatically transfer this information to accounting software has been provided.
A service has also emerged that automatically links the commercial distribution data and payment data thus prepared based on machine learning. Such efforts not only increase the cost efficiency of the financial accounting business, but also lead to the real-time understanding of management trends.
On Open Banking & Open APIs, please also see our related reporting:
Interoperability
The spread of information sharing using an open environment is an important step towards data utilization. However, if there are various trading partners and variations in data standards and specifications, the parties can not properly understand the information, and the data can not be used effectively.
Large companies that invested in information systems to streamline their operations faced barriers to individual optimization relatively early. In the retail industry, efforts have been made to utilize commercial EDI since the 1980s, but since each company followed different specifications and there was no cooperation with wholesalers and manufacturers as their business partners, the benefits of IT investment were limited to internal operations, and scaling was difficult.
For this reason, in the 2000s, discussions on common specifications were repeated, not only in the retail industry, but also in the wholesale industry, and standardization of EDI messages was promoted.
In the banking industry, Zengin-Net’s payment information was converted to XML in 2011, which also provided an opportunity to pave the way for integrated use with commercial data. Then, at the end of last year, Zengin EDI (ZEDI), which can simultaneously transmit payment and supply chain data, went live, and the required infrastructure was in place.
As a result, companies can link supply chain data and ZEDI information more quickly and accurately, and have a foundation for promoting integrated utilization of payment and supply chain data. The interoperability realized under open systems streamlines financial accounting operations by integrating business flow data and payment data. It is the key to push forward.
Beyond cost efficiency
The interest in better use of corporate payments and supply chain data is not only driven by the desire to improve the efficiency of financial accounting. A major improvement is in the sophistication of corporate management. Up until now, attention has been focused on the efficiency of clearing accounts receivable and the improvement of business conditions. However, in recent years, interest in credit risk management applications is spreading, including the detection of deterioration based on the clearing cycle of accounts receivable and the automation of reminder preparation.
In addition, in the field of cash management, the accuracy of projections is expected to improve by combining statistical analysis of past data with recent trends. Furthermore, in areas where executive management decisions are required, such as the formulation of business strategies and identification of business risks, there may be room for the use of payments and supply chain data.
Financial institutions and FinTech companies may be able to use this data to provide financial services. For example, in the accounting service industry, by processing payments and supply chain data in real-time, it is possible to make a small amount of short-term loans that banks did not bother to deal with in the past. By securing access to such data, financial institutions may be able to respond more flexibly and finely to their customers’ financial needs.
Challenges in utilization
As such, there is great potential in utilizing payment and supply chain data, which may lead to the development of corporate activities in various fields. However, there are also challenges. First of all, regarding openness, it is premised that appropriate security measures will be taken. Payment and supply chain data contain important information related to individual transactions, and you need to ensure that the payment is secure.
There are also interoperability issues. Standardization of data specifications is in progress, but coexistence of many specifications may limit the use of data. Discussions will be held among the parties to ensure consistency of specifications, and an environment to support the effective use of data needs to be realized.
Conclusion
In medieval Europe, double-entry bookkeeping, which brought about technological innovation through integration of business activity and finance, enabled an evolution from paper-based records to fully digital FinTech in the 21st century. And I think that evolution has the potential not only to improve the efficiency of financial accounting affairs, but also to lead to the advancement of corporate management.
It is very fortunate that today’s forum will be a forum for sharing and discussing issues and future prospects for effective use of payments and supply chain data in corporations, which will enable future businesses.
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